FDIC Drops Requirement That Banks Retain Part Of Mortgages With >80% LTV (Will It Help?)

So much for the “tight underwriting standards” fable. Today, the Federal Deposit Insurance Corporation dropped the 20 percent downpayment requirement for qualified residential mortgages (QRM). But will dropping the downpayment requirement actually stimulate wider mortgage credit/lending as the regulators say hope?

Oct. 21 (Bloomberg) -By Clea Benson- Lenders will have to keep stakes in mortgages and highly leveraged corporate bonds they package for sale to investors under measures approved by U.S. regulators to rein in risky credit practices.

The interagency rule adopted by the Federal Deposit Insurance Corp. today drops a requirement that banks retain part of mortgages with down payments of less than 20 percent, a proposal that drew protests from bankers and consumer groups when it was proposed in 2011. At the same time, managers of collateralized loan obligations or their underwriters will have to hold at least 5 percent of the debt they package or sell.

The qualified residential mortgage, or QRM, portion of the rule compels banks to retain a 5 percent slice of loans when borrowers spend more than 43 percent of their monthly income to repay debt. It also restricts mortgages with risky features such as balloon payments or repayment terms of longer than 30 years.

The answer is … not likely.

The problem facing the mortgage market is the decline in wages and earnings growth since 2007, not downpayments.


But it is interesting to note that starting in 2012, the average loan-to-value ratio has fallen from 71.30% to 60.80%.


And even if it does work, do want want borrowers will stagnant incomes to be putting lower down payments on their home purchases? And is The Federal Reserve really helping???? Or making matters worse????


Mr. Watt’s Neighborhood: Ignores Stagnant Income Growth As A Cause Of Low Expanding Credit

In Las Vegas, it’s not a wonderful day in Mr. Watts neighborhood.

Oct. 21 (Bloomberg) -By Alexis Leondis, Kathleen M. Howley and Jody Shenn- Bankers who gathered in Las Vegas to hear Melvin L. Watt reveal mortgage rule changes said they won’t do enough to expand credit to many Americans shut out of housing. Lenders demand relief from government lawsuits too.

Watt, 69, the director of the Federal Housing Finance Agency, outlined the flaws that will require lenders to repurchase bad loans from Fannie Mae and Freddie Mac. Lenders big and small have imposed credit standards above those required by the two government-controlled companies to reduce buybacks. Bankers at the conference said government lawsuits over loans with errors, which have cost lenders tens of billions of dollars, remain the biggest obstacle to expanding credit.

I beg to differ, Mr. Watt. While government lawsuits do put a damper on lender’s willingness to lend, there is another more acute problem. Stagnant income growth despite The Fed’s massive intervention in bond and mortgage markets.


Unless we figure out how to increase real wages and household incomes back to 2007 levels, Mr. Watt’s neighborhood is likely to remain in the doldrums.


Existing Home Sales Rise 2.4% In September (But Down 1.70% YoY), Back To 2001 Levels

Existing home sales in September rose 2.4% to get back to 2001 levels. Year over year change in existing home sales were down 1.70%.


If it wasn’t for 30% cash sales, the existing home sales numbers would be dreadful.


The growth was mostly in the West and South.

We can thank The Federal Reserve’s quantitative easing programs (particularly QE3) for juicing existing home sales in the face of lower/stagnant real income and “Death Valley” mortgage purchase applications.


The Fed Futures data is pointing to a Carnival Cruise trip with The Fed Funds rate likely to rise in the near future. Or at least more likely than it has been in the past year.


Here is The March of The Federal Reserve as it distorts prices and incentives.


HUD Secretary Castro Repeats Mantra Of “Credit Is Too Tight” (3/1 ARM Rates HIGHER than 30Y Fixed-rates)

HUD Secretary Julian Castro spoke at the MBA conference in Las Vegas and make several strange statements.

Oct. 20 (Bloomberg) -By Felice Maranz, Christopher Maloney and Clea Benson- “It’s time to stop being apologetic about helping responsible folks buy their first home,” HUD Secretary Julian Castro says in remarks prepared for MBA conf.
• Says has seen “a lot of frustration” from lenders about FHA business post-crisis; lenders have been reluctant to lend because of “regulatory uncertainty”
• “You want to be able to manage your risk better — and so does FHA”
• Taking action including:
• Releasing “Blueprint for Access”
• Overhauling “Single Family Housing Policy Handbook”; 1st section will be effective next June; sees added sections largely completed by next yr
• Announced ‘‘Supplemental Performance Metric’’ that compares lender’s loan performance vs those also doing business within same credit score range
• Will minimize ‘‘Credit Watch Termination’’ risk for lenders who loan to ‘‘worthy borrowers with lower credit scores when their peers do not”
• Offering “new way to look at loan defects,” draft of “Loan Defect Taxonomy”
• In everyone’s interest to help by “expanding access to credit”
• “It’s too hard” to get a home loan; cites Urban Institute study that 1.2m loans a year missed “because credit is too tight”

First, I am not aware anyone being apologetic about helping responsible households buy their first home. At long as it is SUSTAINABLE homeownership. Clearly, with homeownership peaking in 2004-2006 and forecloseure filings starting to rise rapidly in 2007-2008, homeownership was NOT sustainable. And the decline in real median household income since 2007 is resulting in no recovery in the homeownership rate. If fact, it continues to fall.


Second, it is NOT too hard to get a home loan, Mr. Castro. It is that wages and incomes have not recovered, so DTI ratios are a problem.


Third, 3/1 ARM rates are now higher than the 30Y fixed-rate. That cuts off 3/1 ARMS from being a loan type for borrowers trying to get a mortgage for the lowest possible rate.

Lastly, it is NOT in everyone’s best interest to expand access to credit. Remember the housing and credit bubble that exploded, Mr. Castro?



China Blues: China’s Home Sales and Home Prices Declining While Chinese Millionaires Buy Homes In Los Angeles

Yesterday, I wrote about the influx of Chinese millionaires into Los Angeles, specifically Arcadia and how Los Angeles’ housing bubble resembles that of London England.


Now we can see what if happening in China that is helping prod the Chinese to move to Los Angeles. According to the Wall Street Journal, China’s housing bubble is popping. Both home sales are house prices are declining.


Of course, Realtors will be thrilled about selling million dollar homes in Los Angeles, but people that are renting our moving into Los Angeles may be less thrilled. Particularly with home prices rising faster than middle class incomes.


China blues indeed.


Chinese millionaires can always stay in Beijing and visit Wonderland instead of coming to Los Angeles and visiting Disneyland.


At least in Los Angeles, Harrison Ford can find a good noodle bar.

noodle bar

UK Real Wages In Longest Sustained Decline Since 1862, But Mortgage Approvals Rise (Comparison to USA)

According to The Financial Times, the UK is in the throws of the longest sustained decline in real wages since 1862.


However, UK mortgage approvals have been rising since 2008/2009. Contrast that with US mortgage purchase applications which remain dormant since 2010.


Despite The Federal Reserve’s massive liquidity push, real median household income and average wage growth remain stagnant.


In terms of home price growth, London looks like Los Angeles. Both are being “bubbled” by foreign investors.


Of course, Russian and Asian investors are bidding up London home prices while Chinese millionaires doing the same thing for Los Angeles. Like in Arcadia.


If Los Angeles is in a housing bubble, then there might be “Big Trouble in Little China.”


Gone Girl: Yellen Worries That The 90% Of Americans Don’t Own Enough Assets (Low Income, Zero Interest Rates and a Regulatory Wall Hurts)

According to the Fed’s triennial Survey of Consumer Finances, the top 10% of U.S. families are doing just fine, and those in the bottom fifth are essentially being kept afloat by transfer payments; but the inflation-adjusted median family income has shrunk by one-eighth since 2004. Quite simply, middle-class incomes are being gutted.


Citing that same survey, Ms. Yellen expressed concern about “lower-income families without assets” that “can end up, very suddenly, off the road.” She therefore advised families to “take the small steps that over time can lead to the accumulation of considerable assets.” She did not, however, explain how they were to accumulate these assets, in light of falling incomes and zero interest rates.

Not to mention rising home prices when many households can’t qualify for a mortgage due to lower/stagnant incomes. Low interest rates are NOT helping millions of Americans; rather, it is preventing them from earning interest.


And declining real median net worth.


Fed Chair Yellen sounds woefully out of touch with the lower and middle class plight. And starting a new firm leaves the budding entrepreneur facing a wall of regulations and healthcare requirements. Yellen sounds “gone.”

Perhaps “Gone Girl” star Rosamund Pike can reprise her role in “Gone Girl: The Janet Yellen Story.”


And The Rockford Files Stuart Margolin (aka, Angel Martin) as Ben Bernanke.